second quarter 2020 financial review · 2 days ago · regulations; (xxv) compliance with...
TRANSCRIPT
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Second Quarter 2020 Financial ReviewJuly 31, 2020
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2Q 2020 EARNINGS RELEASE
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Certain statements in this financial review relate to future events and expectations and are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “believe,” “estimate,” “will be,” “will,” “would,” “expect,” “anticipate,” “plan,” “forecast,” “target,” “guide,” “project,” “intend,” “could,” “should” or other similar words or expressions often identify forward-looking statements. All statements other than statements of historical fact are forward-looking statements, including, without limitation, statements regarding our outlook, projections, forecasts or trend descriptions. These statements do not guarantee future performance and speak only as of the date they are made, and we do not undertake to update our forward-looking statements.
Caterpillar’s actual results may differ materially from those described or implied in our forward-looking statements based on a number of factors, including, but not limited to: (i) global and regional economic conditions and economic conditions in the industries we serve; (ii) commodity price changes, material price increases, fluctuations in demand for our products or significant shortages of material; (iii) government monetary or fiscal policies; (iv) political and economic risks, commercial instability and events beyond our control in the countries in which we operate; (v) international trade policies and their impact on demand for our products and our competitive position, including the imposition of new tariffs or changes in existing tariff rates; (vi) our ability to develop, produce and market quality products that meet our customers’ needs; (vii) the impact of the highly competitive environment in which we operate on our sales and pricing; (viii) information technology security threats and computer crime; (ix) inventory management decisions and sourcing practices of our dealers and our OEM customers; (x) a failure to realize, or a delay in realizing, all of the anticipated benefits of our acquisitions, joint ventures or divestitures; (xi) union disputes or other employee relations issues; (xii) adverse effects of unexpected events; (xiii) disruptions or volatility in global financial markets limiting our sources of liquidity or the liquidity of our customers, dealers and suppliers; (xiv) failure to maintain our credit ratings and potential resulting increases to our cost of borrowing and adverse effects on our cost of funds, liquidity, competitive position and access to capital markets; (xv) our Financial Products segment’s risks associated with the financial services industry; (xvi) changes in interest rates or market liquidity conditions; (xvii) an increase in delinquencies, repossessions or net losses of Cat Financial’s customers; (xviii) currency fluctuations; (xix) our or Cat Financial’s compliance with financial and other restrictive covenants in debt agreements; (xx) increased pension plan funding obligations; (xxi) alleged or actual violations of trade or anti-corruption laws and regulations; (xxii) additional tax expense or exposure, including the impact of U.S. tax reform; (xxiii) significant legal proceedings, claims, lawsuits or government investigations; (xxiv) new regulations or changes in financial services regulations; (xxv) compliance with environmental laws and regulations; (xxvi) the duration and geographic spread of, business disruptions caused by, and the overall global economic impact of, the COVID-19 pandemic; and (xxvii) other factors described in more detail in Caterpillar’s Forms 10-Q, 10-K and other filings with the Securities and Exchange Commission.
A reconciliation of non-GAAP financial information can be found in our press release describing second-quarter 2020 financial results which is available on our website at www.caterpillar.com/earnings.
Forward-Looking Statements
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COVID-19 and Business Update
Dedicated to the health and safety of our global team
Supporting our customers doing essential business
Continued focus on flexible and
competitive cost structure
Well positioned with strong balance sheet and liquidity
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Sales & Revenues$10.0B
(31%)
$0.84Profit
Per Share1
(70%)
Operating Profit Margin
7.8%(7.5pts)
Second Quarter 2020 Financial Results
1 Second-quarter 2020 profit per share included remeasurement losses of $0.19 per share resulting from settlements of pension obligations.
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CONSTRUCTION INDUSTRIES RESOURCE INDUSTRIESENERGY & TRANSPORTATION
End Markets by Segment
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Executing Our Strategy
Focused on operational excellence, continue to invest in enablers of services growth, including enhancing our digital capabilities, and expanded offerings
Prepared to respond to changes in demand, positive or negative
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2020 Financial ResultsSecond Quarter 2020 vs. Second Quarter 2019
$14.4
$10.0
SALES & REVENUES(in billions of dollars)
PROFIT PER SHARE1
(in dollars)
2019
2020
OPERATING PROFIT(in millions of dollars)
2018
2019
$2.83
$0.84
2019
2020
$2,213
$784
2019
2020
1 Second-quarter 2020 profit per share included remeasurement losses of $0.19 per share resulting from settlements of pension obligations.
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(3,912)
(259) (190)
14,432
9,997(74)
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
2nd Qtr 2019Sales & Revenues
SalesVolume
PriceRealization
Currency Financial ProductsRevenues
2nd Qtr 2020Sales & Revenues
Millio
ns o
f $
Consolidated Sales & RevenuesSecond Quarter 2020 vs. Second Quarter 2019
Sales & Revenues Decreased ($4.4B) or (31%)• Sales volume decreased across the three primary
segments and all regions• Lower end-user demand• Changes in dealer inventories• Unfavorable price realization
2nd Quarter Highlights
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784(82)
2,213 (1,510)
(259) 298211 (54) (33)
0
500
1,000
1,500
2,000
2,500
2nd Qtr 2019Operating Profit
SalesVolume
PriceRealization
ManufacturingCosts
SG&A / R&D Currency FinancialProducts
Other 2nd Qtr 2020Operating Profit
Millio
ns o
f $
Consolidated Operating ProfitSecond Quarter 2020 vs. Second Quarter 2019
Operating Profit Decreased ($1.4B) or (65%)• Decreased sales volume• Unfavorable price realization • Favorable manufacturing costs and lower SG&A/R&D
mainly driven by short-term incentive compensation expense
Operating Profit Margin of 7.8%
2nd Quarter Highlights
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Energy & TransportationSecond Quarter 2020 vs. Second Quarter 2019
Total Sales Decreased ($1,337M) or (24%)• Oil and Gas – Lower demand for reciprocating engines
used in gas compression in North America, partially offset by turbines
• Power Generation – Lower sales volume for small reciprocating engine applications
• Industrial – Lower sales in all regions• Transportation – Sales declines in both rail and marine
applications
Segment Profit Decreased ($262M) or (30%)• Lower sales volume• Favorable manufacturing costs • Lower SG&A/R&D expenses
$886
$624
2019 2020
$5.5
$4.1
2019 2020
Segment Profit(in millions of dollars)
Total Sales*(in billions of dollars)
16.2% 15.0%
2019 2020
Segment Profitas a percent of total sales*
2nd Quarter Highlights
* Includes inter-segment sales.
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Construction IndustriesSecond Quarter 2020 vs. Second Quarter 2019
Total Sales Decreased ($2,419M) or (37%)• North America – Decrease due to lower end-user demand
and changes in dealer inventories• Latin America – Decrease due to lower end-user demand,
changes in dealer inventories and currency• EAME – Decrease due to lower end-user demand and
changes in dealer inventories across the region• Asia/Pacific – Decrease due to unfavorable price
realization and currency
Segment Profit Decreased ($729M) or (58%)• Lower sales volume• Unfavorable price realization• Favorable manufacturing costs• Lower SG&A/R&D expenses
$1,247
$518
2019 2020
$6.5
$4.0
2019 2020
Segment Profit(in millions of dollars)
Total Sales*(in billions of dollars)
19.3%
12.8%
2019 2020
Segment Profitas a percent of total sales*
2nd Quarter Highlights
* Includes inter-segment sales.
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Resource IndustriesSecond Quarter 2020 vs. Second Quarter 2019
Total Sales Decreased ($993M) or (35%)• Decrease due to changes in dealer inventories and lower
end-user demand• Lower end-user demand in non-residential construction
and quarry and aggregates, less impact to mining
Segment Profit Decreased ($329M) or (68%)• Lower sales volume• Favorable manufacturing costs
$481
$152
2019 2020
$2.8
$1.8
2019 2020
Segment Profit(in millions of dollars)
Total Sales*(in billions of dollars)
17.1%
8.3%
2019 2020
Segment Profitas a percent of total sales*
2nd Quarter Highlights
* Includes inter-segment sales.
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Financial ProductsSecond Quarter 2020 vs. Second Quarter 2019
Total Revenues Decreased ($110M) or (13%)• Lower average financing rates• Lower average earning assets
Segment Profit Decreased ($45M) or (23%)• Lower net yield on average earning assets• Lower average earning assets• Higher provision for credit losses• Lower SG&A expenses
2nd Quarter Highlights
$193
$148
2019 2020
$873$763
2019 2020
Segment Profit(in millions of dollars)
Total Revenues*(in millions of dollars)
* Includes inter-segment revenues.
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3Q 2020 Key Thoughts
• Expect normal seasonality
• Anticipate a similar percentage decline in end-user demand as in 2Q
• Expect dealers to reduce inventory levels in 3Q similar to prior year
• Gross margin expected to be impacted by lapping 2H 2019 reductions in material costs
• Ongoing benefits from short-term incentive compensation
• 1H dealers reduced inventories about $1.2B; revised expectation is for more than $2B reduction for the full year
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Capital Allocation, Cash and Liquidity Position
$8.8B $18.5B Strong Financial Position $10.5B revolver
$4.1B of commercial paper support programs$3.9B of short-term credit facilities
Enterprise Cash Balance
Available Liquidity Sources
$0.6BShare repurchases suspended
through year end
Returned to Shareholders in 2Q 2020
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Key Takeaways
Managingoperations
to respond to changes in demand, positive or negative
Returned $2.3B to shareholders YTD through
dividends and share repurchases
Strong financial position; $8.8B enterprise cash
and access to$18.5B of liquidity
Our strategy is working; We continue to
manage costswhile investing for long-term
profitable growth
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2Q 2020 EARNINGS RELEASE
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Q&A